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Income Tax Appellate Tribunal, ‘G’ BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER:
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-30, Mumbai, dated 14.01.2016, which in itself arises from the order passed by the A. O under Sec. 143(3) r.w. Sec. 147 of the Income Tax Act, 1961, (for short ‘Act’), dated P a g e | Shri Vikram Parasmal Doshi Vs. ITO 16.02.2015. The assessee assailing the order of the CIT(A) had raised before us the following grounds of appeal:-
On the facts and circumstances of the case, and in law, the learned CIT(A)- 30, Mumbai, erred in directing the A.O to make an adhoc addition of rs.13,44,095 (representing 7.5% of the purchases alleged to be bogus by the A.O) being “profit element embedded in such transaction as alleged by him and the addition retained by him be deleted in toto. The assessee appellant craves leave to add, alter modify or delete the above ground taken.”
2. The assessee had further raised before us the following additional grounds of the appeal:- “1. On the facts and circumstances of the case, and in law, the learned CIT(A)-30, Mumbai, erred in re-opening of the assessment u/s 147 of the Income Tax Act, 1961 merely on the information received from the DGFT (Inv), Mumbai that the appellant obtained bogus purchase bills from various parties and that the Department had in its possession their statements/deposition/affidavits admitting that they had only issued bills to the appellant without actually supplying the goods, without affording an opportunity to the appellant to study the statements/depositions/affidavits and cross examine the parties.
Hence it is submitted that the re-opening of the assessment being bad in law be squashed or in the alternative, the addition of Rs. 13,44,095/- made to the returned income, being arbitrary and contrary to the principles of natural justice and equity be deleted in toto. The appellant craves leave to add, alter, modify or delete any of the above grounds of appeal
as the occasion may demand or circumstances may require.
3. Briefly stated, the facts of the case are that the assessee who is engaged in the business of trading in ferrous and non-ferrous metals as a sole proprietor of a concern by the name of M/s Shubham Enterprises had filed his return of income on 18.09.2009, declaring total income of Rs.8,67,770/-.
That on the basis of information received by the A.O from the DDIT (Inv.), Mumbai, that the assessee was one of the beneficiary of the accommodation entries provided by certain parties which were P a g e | Shri Vikram Parasmal Doshi Vs. ITO indulging in issuing bogus purchase/sale bills, the case of the assessee was reopened under Sec. 147 of the Act.
That during the course of the assessment proceedings the A.O in order to verify the genuineness and veracity of the purchases claimed by the assessee to have been made from the following parties:-
Sr. No. Name of hawala parties Hawala TIN Amount 1. R.J. METAL INDUSTRIES 27890544744V 946502 2. ROLEX TRADING CO. 27490644001V 60274 3. SHUBH LABH METAL & 27800620987V 227677 ALLOYS/BRIGHT ENTERPRISES 4. DIMPLE METAL INDUSTRIES 27090651690V 185681 5. JINESH METAL CORPORATIN 27480545794V 392292 6. PINAKING METAL INDUSTRIES 277770552376V 401848 7. ANIKET STEEL P. LTD 27400586287V 446873 8. GURUKUL STEEL 27510688901V 482227 9. VICTORIA TRADING CO. 27740614812V 501031 10. VIDHI METAL INDUSTIRES 27490582406V 1303277 11. VIGNESHWAR IMPEX 27570653366V 1871608 12. TYSON STEEL & TUBES P. LTD 27840662966V 2455153 13. WEL STEEL (INDIA) 27250500185V 259079 14. KANAK STEEL (INDIA) 27360684279V 498572 15. ARIHANT TRADELINK 27260657465V 600294 16. RAJRATAN METAL INDIA 273206202821V 1376520 17. K.K. METAL (INDIA) 27290548954V 197611 18. HARDIC METAL CORPN 27650268814V 280136 19. NAYAN STEEL CENTRE 27120580330V 1379085 20. KUSHAL STEEL CORPN 27350571134V 1771655 21. BHAGYALAXMI STEEL 27810631797V 2283874 INDUSTRIES TOTAL 17921269 , issued notices under Sec. 133(6) of the Act to the aforementioned parties at the addresses provided by the assessee. However, the notices could not be served and were returned back unserved by the postal authorities with the remarks ‘not known’ or ‘no such address’ P a g e | Shri Vikram Parasmal Doshi Vs. ITO or ‘left’ etc. The A.O in the backdrop of the aforesaid facts directed the assessee to establish the genuineness of the aforementioned parties as well as substantiate the authenticity of the purchases which were claimed to have been made from them. The A.O further directed the assessee to produce the abovementioned parties along with their books of accounts. The assessee in compliance to the aforesaid directions furnished with the A.O the copies of the ledger accounts along with the copy of the purchase invoices of the aforementioned parties, copies of bank statements evidencing payments of the purchase consideration to the aforementioned parties through proper banking channels and a chart reflecting the details in respect of the purchases made from the said parties along with the corresponding sales. The details furnished by the assessee did not find favour with the A.O, who observed as under:-
“(i) The Sale Tax Department, has conducted independent enquiries in each of the non genuine' parties and conclusively proved that these parties are engaged in the business of providing accommodation entries only. The parties are issuing bills without delivering any goods and services. (ii) Independent enquiries / investigations have been carried out by this office under the I.T. Act and the assessee has been duly confronted with the same. Evidently, the assessee had adopted a modus operandi to reduce his true profits by inflating his expenses including purchase expenses by taking accommodation entries from such parties. (iii) The assessee was asked to produce the said 'non genuine dealers' for examination, but the assessee failed to do so. Thus, in the books of accounts of the assessee, the purchases to the extent made from the above said parties remained unverifiable and hence I arrive at a conclusion that the purchases shown by the assessee in the books of accounts arc inflated and bogus purchases are debited to trading account to suppress the true profits to be disclosed to the department. (iv) The assessee could not file the vital documents such as delivery challans, transport receipts, octroi receipt. For payment of Octroi duty, receipt of weighbridge for weighing of goods, excise gate pass, goods inward register maintained at godown/warehouse/storage house etc. Whatever documents P a g e | Shri Vikram Parasmal Doshi Vs. ITO placed on record is not capable of sustenance. The items shown to have purchased from the said parties are of such in nature that they require separate transportation. Hence the mode of transportation is not explained properly. (v) The onus was upon the assessee to establish the genuineness of purchases made by the assessee. (vi) Mere filing of evidences in support of purchases and payment through account payee cheque cannot be conclusive in a case where genuineness of transaction is in doubt. Payment by account payee cheques are not sacrosanct. (vii) The Sales Tax Department certified that the aforesaid parties arc „non genuine operators‟ after conducting independent enquiries. It is evident that the assessee did not make any effort to controvert the finding recorded by the DGIT (Inv.) and it made no efforts to produce the seller parties. (viii) If all the evidences point to the f act that no actual goods were supplied by the above parties, then the argumen t of assessee that it purchased goods in good faith is not tenable.” The A.O on the basis of his aforesaid observations concluded that the assessee had not made any genuine purchases from the abovementioned parties. The A.O observing that as the genuineness of the purchases claimed by the assessee to have been made from the aforementioned parties could not be verified, therefore, not inspired with the correctness and completeness of the accounts of the assessee rejected the same by invoking the provisions of Sec. 145(3) of the Act.
The A.O in the backdrop of the aforesaid facts concluded that the assessee had indulged in non-genuine transactions with the intent to suppress its true profits and to reduce the tax liability. The A.O in the backdrop of his aforesaid observations relied on the judgment of the Hon’ble High Court of Gujarat in the case of Simit P. Sheth (2013) 356 ITR 451 (Guj) and keeping in view the request of the assessee for estimating its gross profit at a reasonable rate, estimated the profits involved in making of the aforesaid bogus purchases by the assessee @ 12.5% of the total non genuine purchase of Rs. 1,79,21,269/- and made an addition of Rs.22,40,160/- in the hands of the assessee.
P a g e | Shri Vikram Parasmal Doshi Vs. ITO 7. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions of the assessee who had sought the deletion of the entire addition before him, observed that the assessee had miserably failed to prove the genuineness of the purchase transactions under consideration on the basis of clinching evidence. However, the CIT(A) in all fairness observed that as the G.P rate of 5.42% shown by the assessee during the year under consideration was progressive as in comparison to that of the immediately preceding year, therefore, concluded that the gross profit to the extent of 5% could fairly be taken to have already been offered to tax by the assessee in respect of the bogus purchases under consideration. Thus, on the basis of his aforesaid observations the CIT(A) restricted the addition in the hands of the assessee to the extent of 7.5% [i.e. 12.5% (-) 5%] and directed the A.O to restrict the addition to the said extent.
The assessee being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. It was submitted by the ld. Authorized Representative (for short ‘A.R’) for the assessee that the lower authorities had erred in concluding that the assessee had made bogus purchases from the aforementioned parties. It was submitted by the ld. A.R that all the requests of the assessee before the lower authorities to cross examine the aforementioned parties had gone in vain. The ld. A.R drew our attention to the submissions dated 07.12.2015 which were filed before the CIT(A), wherein the fact that no opportunity had been afforded to the assessee to cross examine the aforementioned parties was brought to the notice of the CIT(A) (Page 16 of ‘APB’). The ld. A.R in order to drive home his contention that the assessee had not made any bogus purchase, submitted that if the alleged bogus purchases of Rs.1,79,21,269/- were excluded from the P a g e | Shri Vikram Parasmal Doshi Vs. ITO total purchases of the assessee for the year under consideration, then the G.P rate excluding such alleged bogus purchases would shoot up to 54.44% as against the G.P of 5.42% shown by the assessee. The ld. A.R submitted that the G.P rate of 5.42% shown by the assessee during the year under consideration was well in conformity with that of the immediately two preceding years, viz. AYs: 2007-08 and 2008- 09. The ld. A.R further took us through another reply that was filed before the CIT(A), wherein again the assessee had submitted that the cross examination of the aforementioned parties was not facilitated by the A.O. The ld. A.R in support of his contentions relied on the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. (2015) 372 ITR 619 (Bom). Per contra, the ld. Departmental Representative (for short ‘D.R’) relied on the orders of the lower authorities.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that a perusal of the records and the orders of the lower authorities reveals beyond any scope of doubt that the assessee had failed to substantiate the genuineness and veracity of the purchases which were claimed to have been made from the aforementioned 21 parties. We have deliberated on the contention of the ld. A.R that the lower authorities had drawn adverse inferences as regards the genuineness and veracity of the purchases claimed by the assessee to have been made from the aforementioned parties, merely on the basis of the information forwarded by the DGIT (Inv.), Mumbai, that the said parties on an investigation carried out by the sales tax department were found to be involved in issuing bogus purchase/sale bills without supplying any goods. The ld. A.R had further vehemently submitted before us that drawing of adverse inferences as regards the P a g e | Shri Vikram Parasmal Doshi Vs. ITO authenticity of the purchases made by the assessee from the aforementioned parties on the basis of the statements/depositions/affidavits filed by the said parties with the sale tax authorities, could not have been used against the assessee without allowing a cross examination of the said parties as requested by the assessee.
We have deliberated on the aforesaid contentions of the assessee and are not persuaded to be in agreement with the same. We are of the considered view that as the assessee had claimed the purchases from the aforementioned 21 parties as an expenditure in its books of accounts, therefore, a very heavy onus was cast upon him to substantiate the genuineness and veracity of the same. We find that the A.O observing that the notices sent to the aforementioned parties under Sec. 133(6) at the addresses provided by the assessee were returned back by the postal authorities with the remarks ‘not known’ or ‘no such address’ ‘left’ etc, therefore, the same raised serious doubts as regards the genuineness of the purchases claimed by the assessee to have been made from the said parties. We find that that A.O before drawing any inferences as regards the veracity of the purchase transactions, had specifically directed the assessee to produce the aforementioned parties for necessary verification. We are of the considered view that the assessee who was clearly at fault by not producing the aforementioned parties for examination before the A.O, thereafter could not be allowed to turn around and claim that the A.O had not allowed cross examination of the said parties, which as observed by us hereinabove were not available at the addresses provided by the assessee. We are of a strong conviction that not only the assessee had failed to discharge the onus cast upon him to prove the authenticity of the purchases under consideration by producing P a g e | Shri Vikram Parasmal Doshi Vs. ITO the aforementioned parties, but rather, had most casually by loosing sight of the fact that he had grossly failed in not producing the aforementioned parties for necessary examination before the A.O, had however tried to take benefit of the same by alleging that the A.O had failed to allow cross examination of the said parties before using the statements and affidavits for drawing of adverse inferences against him. We may herein observe that though it remains as a matter of fact that the information received by the A.O from the office of the DGIT(Inv.), Mumbai, formed the basis for reopening the case of the assessee under Sec. 147 of the Act, but however, it was the failure on the part of the assessee who despite being afforded sufficient opportunity by the A.O to substantiate the genuineness and veracity of the purchase transactions under consideration, that adverse inferences in respect of the aforesaid purchase transactions were drawn by the A.O. We thus do not find ourselves to be in agreement with the contention of the ld. A.R that the A.O was in error in drawing adverse inferences as regards the purchases claimed by the assessee to have been made from the aforesaid parties.
We now advert to the quantification of the addition/disallowance sustained by the CIT(A) in respect of the purchase transactions under consideration. We find that the CIT(A) agreeing with the view taken by the A.O that the assessee had failed to prove the authenticity of the purchase transactions under consideration, had upheld the view of the A.O to the said extent. However, the CIT(A) being of the view that now when the assessee had already accounted for gross profit to the extent of 5.42% in respect of the bogus purchases in his books of account for the year under consideration, therefore, the average gross profit of 5% did merit reduction from the estimated addition/disallowance worked out by the A.O. We find that the CIT(A)
P a g e | Shri Vikram Parasmal Doshi Vs. ITO on the basis of his aforesaid observations had sustained the net addition of 7.5% of the value of the bogus purchases in the hands of the assessee. We have given a thoughtful consideration to the issue before us and are of the considered view that as the assessee had failed to substantiate the genuineness and veracity of the purchase transactions under consideration, therefore, keeping in view the fact that the corresponding sales of the goods had not been dislodged by the lower authorities, it can safely be concluded that the assessee had made the purchases of the goods under consideration, though not from the aforementioned parties, but from the open/grey market. We are of the considered view that keeping in view the fact that the assessee had purchased the goods from the open/grey market, the quantification of the profits involved in making of such purchases would clearly answer the quantification of the addition/disallowance that was called for in the hands of the assessee. We are of the view that the reliance placed by the ld. A.R on the judgment of the Hon’ble High Court of Bombay in the case of Commissioner of Income Tax Vs. Nikunj Eximp Enterprises Pvt. Ltd. (2015) 372 ITR 619 (Bom) being distinguishable on facts would thus not assist the case of the assessee before us. We find that unlike the facts involved in the case before the Hon’ble High Court, as the assessee in the case before us had failed at all stages to irrefutably prove the genuineness of the purchase transactions claimed to have been made from the aforementioned 21 parties, therefore, the lower authorities had rightly characterized the same as bogus purchase transactions. We are of the considered view that the A.O following the order of the Hon’ble High Court of Gujarat in the case of CIT Vs. Simit P. Sheth (2013) 356 ITR 451 (Guj) had sustained the addition/disallowance to the extent of 12.5% of the value of the bogus purchases. We are of the view that the CIT(A) had already allowed substantial relief to the assessee by scaling down the